How Digital Transformation Reshapes Executive and Worker Compensation: Evidence From Chinese Manufacturing Firms

ABSTRACT This study examines how digital transformation (DT) affects firms' internal incentive structures in China from 2010 to 2019. Unlike prior research, we assess firms' DT progress through participation in a nationwide DT certification program. Using a variety of empirical methods, we analyze how DT affects the compensation of both executives and workers, controlling for labor productivity, financial performance, and other firm characteristics. Our results indicate that: (i) DT significantly increases average worker compensation; (ii) this increase stems from compositional shifts toward hiring more skilled workers and creating additional non‐routine jobs; (iii) contrary to skill‐biased or routine‐biased technological change predictions, DT raises worker compensation without uniformly reducing low‐wage jobs in absolute terms; (iv) DT realigns incentive structures by linking corporate growth to executives' future compensation rather than current pay; and (v) DT reduces both the absolute and relative compensation gaps between executives and workers.